APR Calculator

Convert a loan's stated rate and fees into the true Annual Percentage Rate

Loan Details

$
%
$

Origination, discount points, and prepaid finance charges.

Your True APR

True APR (with fees)

7.201%

+0.201 pts above the nominal rate

Stated Interest Rate

7.000%

Nominal note rate

Net Amount Financed$294,000
Monthly Payment$1,995.91
Total of Payments$718,527
Total Interest$418,527
Total Finance Charge (incl. fees)$424,527

What APR Really Measures

The APR spreads your upfront fees across the life of the loan so you can compare loans on equal footing. A loan with a lower note rate but high fees can carry a higher APR than a loan with a slightly higher rate and low fees. The wider the gap between APR and the stated interest rate, the larger the upfront cost you are paying to get that rate.

How the APR Calculator Works

The Actuarial APR Formula

The calculator uses the standard US closed-end APR method required under Regulation Z (Truth in Lending Act). It first computes your monthly payment on the full loan amount at the stated note rate, then solves for the rate at which the present value of those payments equals the net amount financed (loan amount minus upfront fees):

Amount Financed = Loan Amount − Upfront Fees
PV(Monthly Payment @ APR, n) = Amount Financed

The monthly payment itself comes from the familiar amortization formula M = P·[r(1+r)^n] / [(1+r)^n − 1]. Solving for the discount rate that balances the equation is done numerically (bisection), the same approach lenders use to derive a disclosed APR.

Why the Gap Between APR and Rate Matters

A loan advertised at a low note rate can still be expensive if it carries heavy upfront fees. The APR closes that gap: the larger the spread between APR and the stated rate, the more you are paying up front to buy that rate. When comparing two offers, the one with the lower APR is usually cheaper over the full term — provided you keep the loan that long.

Put Your APR in Context

Once you know your true rate, model the payment it produces in the mortgage calculator, or check whether your debt-to-income ratio supports the loan. For current national benchmarks, see our average mortgage rate reference.

Educational estimate, not a loan offer. This calculator follows the Regulation Z actuarial convention and excludes recurring escrow items (taxes, insurance, mortgage insurance). Your official disclosed APR appears on the Loan Estimate from a licensed lender and may differ with your exact fee stack and loan type.

Official Standards & Authoritative Sources

CFPB

Consumer Financial Protection Bureau — Truth in Lending (Regulation Z)

consumerfinance.gov

Federal Reserve

Board of Governors — consumer credit disclosure

federalreserve.gov

FTC

Federal Trade Commission — APR & loan cost guidance

ftc.gov

Freddie Mac

Federal Home Loan Mortgage Corporation

freddiemac.com

Frequently Asked Questions

What is APR and how is it different from the interest rate?
The interest rate is the cost of borrowing the principal alone. The APR (Annual Percentage Rate) adds the loan's upfront finance charges — origination fees, discount points, and certain closing costs — and spreads them across the life of the loan. That makes APR a more complete measure of what you actually pay, which is why the Truth in Lending Act requires lenders to disclose it.
How does this calculator compute APR?
It first calculates your standard monthly payment from the loan amount and stated rate, then finds the rate at which the present value of those payments equals the net amount financed (loan amount minus upfront fees). This actuarial method follows the Regulation Z closed-end APR approach, solving for the rate with an iterative bisection routine.
Why is my APR higher than my interest rate?
Because upfront fees reduce the net amount you actually receive while your payments are based on the full loan amount. The wider the gap between APR and the note rate, the more upfront cost you are paying to obtain that rate. A no-fee loan has an APR very close to its interest rate.
Should I compare loans by APR or by interest rate?
For loans with similar terms and holding periods, APR is the better comparison because it includes fees. But APR assumes you keep the loan to term; if you refinance or sell early, a loan with low fees but a higher rate can beat a low-rate, high-fee loan. Compare APR alongside the total finance charge shown here.
Does APR include mortgage insurance or property taxes?
No. Under Regulation Z, the disclosed APR on a mortgage excludes ongoing property taxes, homeowner's insurance, and mortgage insurance premiums — those are not finance charges. This calculator follows that convention: it folds in upfront fees only, not recurring escrow items.
Is the APR a quote or an approval?
No. This tool is an educational estimate using the formula you enter. Your disclosed APR on a real loan also depends on the exact fee stack your lender charges, the loan type, and the rate you are actually offered. Confirm the official APR on your Loan Estimate from a licensed lender.

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Disclaimer:

All calculations are approximate for planning purposes only. This tool does not provide official financial, legal, or tax advice. All financial decisions should be verified with a qualified mortgage lender or financial advisor.